Salz Review - Wall Street Journal

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155 Salz Review An Independent Review of Barclays’ Business Practices ― In the retail and commercial banks, Barclays booked provisions for alleged PPI and SME derivatives mis-selling; ― In Wealth Management, Barclays’ fines in respect of Aviva bonds; ― Across the Group, Barclays’ fine for a failure to comply with US sanctions and transaction reporting. 12.25 Senior management told us that they personally had a zero tolerance towards noncompliance. However, the compliance culture did not uniformly reflect across the Group the view that compliance was everybody’s responsibility. Many interviewees suggested that a number of business leaders and front line staff did not view regulatory compliance as central to their own role. Some also felt the relationship between the business and the Compliance function was adversarial rather than collegiate, with Compliance seen as an obstacle to overcome in doing business. These issues have been recognised by Barclays. For example, the investment bank has launched a programme to improve the compliance culture, including overhauling the compliance manual and principles. 12.26 These problems may have been caused, in part, by an inconsistent implementation of operational risk policies. In some businesses, Risk Control Assessments (RCAs), were viewed by the businesses as a ‘box ticking’ exercise and the responsibility of the Operational Risk function. 12.27 We also found it difficult to see how the various management committees charged with operations and operational risk came together to oversee these risks. In reviewing both management risk committee and Board Risk Committee presentations, it was not clear that all operational risk losses were evaluated both quantitatively and qualitatively against Group risk appetite and linked to subsequent management action, for example in internal controls. We also suspect that this made it less straightforward for the Board Risk and Audit Committees to exercise their oversight of operational risk (see Section 9). Reputational Risk 12.28 The management of reputational risk is complicated by the fact that reputational damage is often the result of other risk events. Given the fallout from the financial crisis, the low levels of trust in banks, and heightened scrutiny on business conduct, reputational risk has become a critical issue. 12.29 Historically, Barclays articulated its approach to reputational risk as making clear that individuals were responsible for the impact of their decisions and that certain decisions had to be reviewed by business-specific transaction committees, which considered the reputational impact in their assessment of a transaction. Barclays would have benefited from a more comprehensive reputational risk framework given its business mix. This might, for example, have led to an earlier discussion as to whether the scale of the SCM business needed to be moderated in response to changing public views as to the acceptability of tax structuring.
Salz Review An Independent Review of Barclays’ Business Practices 156 12.30 Barclays has recently revised its reputational risk framework to help it consider more consistently and systematically the impact of business decisions on its reputation. The framework defines roles and responsibilities for managing reputational risk for all businesses and functions, including the newly formed Citizenship team. The framework also defines a governance structure for raising and escalating reputational risk issues from Reputation Councils to the new Board Conduct, Reputational and Operational Risk Committee. The Reputation Councils conduct regular reviews of the effective operation of the reputational risk framework. This effort is being reinforced by a reputation management initiative to embed better capabilities in the businesses to identify, mitigate and manage reputational risks. 12.31 Barclays has also conducted a business line review within the investment bank. Reputational impact was one of three criteria used to determine which businesses to exit or significantly modify. 12.32 Barclays has begun to elevate reputational risk by classifying it as a Principal Risk and trying to build it more into its decision making. Ultimately, it is how its staff and leadership behave, coupled with effective governance, which will determine its success in rebuilding its reputation. Recommendation 29: Conduct, reputational and operational risk Barclays should ensure its conduct, reputational and operational risk framework includes the articulation of a tangible risk appetite statement and mechanisms to ensure that conduct, reputational and operational risk are fully factored into business decisions and governance. The First and Second Lines of Defence: Risk Culture and Learning 12.33 We now look at three aspects of a control environment that matter for both the first and second lines of defence. Risk Culture 12.34 Strengthening the risk management culture requires embedding a risk appetite framework, while clarifying the roles and responsibilities of the first and second lines in the control frameworks. 12.35 We did not find it easy to discern who is responsible for each aspect of the daily management of risks and the associated controls. This is important if performance management is to reinforce accountability for risk. The personal development objectives we reviewed show that qualitative risk management and control environment objectives were included in individual performance appraisals. However, we have observed that these objectives were somewhat undifferentiated across cohorts and job roles. In addition, risk and control themes were rarely mentioned in the actual performance assessments and were typically not explicitly weighted in the overall performance grade. Overall, it was hard to determine what
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Salz Review - April 2013
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Salz Review - Wall Street Journal

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